In April 2018, the Supreme Court of California (SCOCAL) unanimously held in Dynamex that the twelve-factor Borello test and subsequent wage orders by the defunct Industrial Welfare Commission were not consistent with the prevailing California Labor Code. Instead, they applied a stricter A-B-C test for when companies must consider those performing work as employees and not independent contractors.
Critics of the decision point out that the case was a class action certification case out of Los Angeles Superior Court and SCOCAL acted in an overly broad manner. Labor cheered the decision after facing years of private sector decline, threats of public sector decline after the United States Supreme Court’s decision in Janus, and the growth of the “gig economy,” where technology is connecting services with customers through independent contractors that traditionally would have been employees.
There’s a saying in the legal world that “bad facts make bad law,” and that was certainly the case in Dynamex. Dynamex, now owned by Montreal-based TFI International, was a document delivery service that affirmatively recategorized existing employees to independent contractors, thus removing benefits and paying payroll taxes and unemployment insurance. They screwed the legal pooch on that one.
The SCOCAL decision in Dynamex only applied to the plaintiff class in that case. However, the decision meant that the strict A-B-C test was the law of the state for every area of the economy and was an opening of the floodgates for litigation for some “you’ve got to be kidding me” professions such as barber Kevin who works at Jason’s great Iverson Barber Shop on 10th Street. Like many salons and barber shops, Kevin rents a station, can set his prices, schedule, and the like. But, a strict A-B-C test could have required Jason to treat Kevin as an employee and taking away the flexibility Kevin likes.
I used a simple example, but the same thing could have played out in the legal, medical, accounting and many other areas of California’s economy.
While they didn’t say it explicitly, my read of Dynamex was a loud yell from the San Francisco-based court to the Legislature “Hey you, you haven’t updated your Labor Code and need to do so.”
Now, I’ve been a critic of the approach taken with AB 5 as a codification of Dynamex with industry-specific exemptions. I would have preferred the Legislature actually take time to figure out a test between Borello’s twelve-point test and Dynamex’s A-B-C. But, I’m just a writer and talker. I don’t lobby anymore and don’t testify my opinion in hearings.
I still would prefer a smart discussion, but that’s simply not going to happen this year. We have the app-based transportation companies (Uber, Lyft, DoorDash, and Postmates) pursuing an initiative to exempt themselves. We have Republicans calling for both more exemptions and a a complete repeal of AB 5 to be replaced by a codified Borello. That ain’t gonna happen.
Senator Cathleen Galgiani (D-Stockton) is calling for the smart discussion in SB 1039, but she’s on the outs with labor and the Democratic Party as she is supporting Modesto council member Mani Grewal (D) as her successor, while labor and the party is supporting Assembly member Susan Talamentes Eggman (D) for the seat and things are pretty nasty.
AB 5 author Lorena Gonzalez (D-San Diego), a powerful legislator as chair of Assembly Appropriations and chair of the Latino Legislative Caucus, acknowledges more exemptions are needed and has introduced a spot bill that will be amended soon. But, she is sticking with a codified Dynamex A-B-C test with exemptions. I don’t see her losing that fight this year.
As I wrote above, I don’t like the approach, but it is far better than Dynamex as written. It limits the rush to the courthouse in many areas of the economy, which is a good thing, with apologies to my friends in the plaintiffs’ bar. It also avoids good players, such as Jason at Iverson’s from having to change a barber shop station-rental structure that has existed forever to an employer-employee approach.
There are clear exemptions that were missed last year, largely because they don’t have lobbyists, such as community arts groups and gig musicians, like Senator Steve Bradford (D-Gardena). They’ll get exemptions in 2020.
There are lots of other players that are not following AB 5 that lost the exemption fight last year and unlikely to win an exemption this year. This includes the app-based transportation and delivery companies who are hoping for the November initiative. Instacart is already in trouble in San Diego Superior Court after the San Diego City Attorney filed a complaint against them, and the initiative doesn’t really apply to their shop-and-deliver model. I don’t know what will happen with the popular company.
In short, more exemptions will be approved this year, but these big “gig economy” companies are not likely to win. However, I think the November initiative will pass and I don’t know that labor will put up a huge fight pitting unions against popular consumer-oriented companies, many of which their members likely use.
All the above said, the 2019 exemptions and the 2020 exemptions are far better than Dynamex as written. As a sage once said “You can’t always get what you want, but you get what you need.”
The question is how they will get what they need. Some companies like Instacart may simply not survive, which would suck for users and investors. But after all, it’s the art of the possible in politics and it is what it is.